Planning to Restructure or Downsize? Do This First.

Jennifer L'EstrangeMarch 26, 2020

With the world turned upside down, our team spent the weekend working with several clients in making some tough decisions for their organization in order to weather the coming storm. The choice to downsize is never easy and has obvious impacts on a company and its employees. We wanted to share our insight on our approach to restructuring and downsizing projects.

Starting assumption: you have already reviewed your full P&L and identified ways to conserve cash through cost cutting measures and ways to accelerate revenue realization. There are some good suggestions here if you haven’t already done this.

Key Questions To Ask

What is your current burn rate? If revenue stops, how long will it be before you are unable to meet your payroll obligations?

What work is on the schedule for the next 4 weeks? And then the next 12 weeks? What are your minimum workforce requirements to meet this demand?

What does your sales pipeline look like? How long is your sales cycle? What changes do you expect in the next 6 months?

Once you have the answers to these questions, ask yourself what is the minimum workforce needed to sustain operations – and keep the talent that is instrumental to your business?

In other economic circumstances, there are several use cases for reorganizing or downsizing a business. Most often, we’re looking at technology implementation that changes or reduces the need for a specific job or skill. Another use case is outsourcing or relocating/offshoring work to take advantage of labor arbitrage opportunities.

In the current climate, the only business case is survival.Your decisions need to solely based on the premise that cutting salary costs is the best and perhaps only option for keeping the lights on and making sure that there’s a business for people to come back to.

Identify Essential Personnel

Identifying the key people your business needs to operate is the first step. Identify the criteria that you will use to identify your essential employees. Make sure it is based on their job and you take an even-handed approach to avoid claims of discrimination.

An example of criteria that you might use to identify essential personnel are:

Employees who are key to realizing revenue for the company. These are the key resources who perform the work for which your company is paid, not necessarily sales people. Although you may need to keep key sales managers who can manage the sales pipeline.

If you haven’t already outsourced this function, the next step is to look at employees who are essential for financial management and overall operations. These are the resources that ensure that you are receiving revenue, paying invoices, managing payroll and ensuring that your company remains solvent. It also may include key IT staff – especially if your organization just went 100% remote in a 24-hour period.

Lastly, look for employees who have subject matter expertise in a particular area of the business and key leaders who excel at managing in a crisis. These are the people that differentiate you from the competition and ensure that you are ahead of the curve when we come out on the other side of this.

A Note On Poor Performers

If you are currently counseling poor performers in your organization and have not seen improvements in their performance and contribution to business results, now is the time to evaluate current status and make decisions accordingly – before looking at any other job cuts.

We know these times are uncertain, but if you’re not sure how to take the first step in the downsizing or restructuring process, our consulting team can help.

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The Results

Construction and Contracting

A commercial roofing contractor was in hyper growth mode. They had goals to increase their field workforce to expand their service area to additional states and geographical locations. If they were to grow their field workforce, they would also need to increase their administrative, operational and sales headcount to support the additional workload created by increased field work. Additionally, they were challenged in workforce retention and development, experiencing high turnover, and did not have a dedicated Human Resources professional to manage employee relations and compliance issues that come with trying to scale a business.